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AXL Arrow Exploration Corp.

21.75
-0.35 (-1.58%)
Last Updated: 10:29:56
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Arrow Exploration Corp. LSE:AXL London Ordinary Share CA04274P1053 COM SHS NPV (CDI)
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -0.35 -1.58% 21.75 21.50 22.00 22.30 21.75 22.00 165,682 10:29:56
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Crude Petroleum & Natural Gs 25.14M 346k 0.0012 308.33 105.77M

Arrow Exploration Corp. Q3 2023 Interim Results (9777U)

29/11/2023 7:00am

UK Regulatory


Arrow Exploration (LSE:AXL)
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TIDMAXL

RNS Number : 9777U

Arrow Exploration Corp.

29 November 2023

NOT FOR RELEASE, DISTRIBUTION, PUBLICATION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO OR FROM THE UNITED STATES, AUSTRALIA, JAPAN, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION.

ARROW ANNOUNCES Q3 2023 INTERIM RESULTS

CALGARY, Nov 29, 2023 - Arrow Exploration Corp. (AIM: AXL; TSXV: AXL) ("Arrow" or the "Company"), the high-growth operator with a portfolio of assets across key Colombian hydrocarbon basins, announces the filing of its Interim Condensed (unaudited) Consolidated Financial Statements and Management's Discussion and Analysis ("MD&A") for the three and nine months ended September 30, 2023 which are available on SEDAR ( www.sedar.com ) and will also be available shortly on Arrow's website at www.arrowexploration.ca .

Q3 2023 Highlights:

-- Recorded $13.9 million of total oil and natural gas revenue, net of royalties, almost double compared to the same period in 2022 (Q3 2022: $7.6 million).

-- Net income of $7.1 million and adjusted EBITDA (1) of $9.8 million, more than double compared to 2022 (Q3 2022: $2 million and $4.6 million, respectively).

   --    Average corporate production up 68% to 2,518 boe/d (Q3 2022: 1,503 boe/d). 

-- Realized corporate oil operating netbacks (1) of $52.67/bbl. Q3 operating costs were slightly higher than Q2 due to higher start-up costs at the Carrizales Norte discovery.

   --    Cash position of $12.8 million at the end of Q3 2023. 
   --    Generated positive operating cashflows of $6.5 million (Q3 2022: $5.2 million). 

-- Successfully drilled the Carrizales Norte-2 (CN-2) and Carrizales Norte-3 (CN-3) wells at the Tapir block, resulting in additional production and reserves additions.

-- Significant increase in reserves from the Carrizales Norte discovery (CN), adding more than 3.92 MMbbls of 2P reserves.

(1) Non-IFRS measures - see "Non-IFRS Measures" section

Post Period End Highlights:

-- The Rio Cravo Este-6 well (RCE-6) has been drilled and is currently producing from the Carbonera C7 formation.

   --    The Oso Pardo-3 well (OP-3) has been drilled and is currently undergoing production testing. 

-- RCE-7 has reached target depth and is currently being tested. Once on production, the drilling rig will move to RCE-8 which is expected to be on production before year end.

-- Oso Pardo-4 (OP-4) has been spud and is currently drilling. It is expected to reach target depth this week.

-- In October and November 2023, the Company issued 40,338,307 common shares related to the exercise of warrants, raising cash proceeds of $4.5 million. At November 1, the Company held $18.5 million cash as a result of the warrant exercise and operating cash flow. The Company has no further warrants outstanding.

-- The Supreme Court of Colombia ruled that royalties are tax deductible. Courts are considering other possible changes to tax regulations which could have positive outcomes for the oil and gas industry.

Outlook:

   --    Arrow anticipates drilling two additional wells at Rio Cravo Este (RCE)  by year-end. 

-- Arrow plans to drill another development well on the Oso Pardo Block in the Middle Magdalena Basin.

-- The preliminary development plan at CN consists of 21 wells, the majority focusing on the Ubaque formation, to fully exploit the thick reservoir. The reservoir pay zone is consistently thick (100 feet) across the fault bounded structure. C7 and Gacheta targeted wells will also be part of the overall development plan at CN.

-- In 2024 the Company plans to have a $40 million capital program including 15 wells. The majority of drilling will be focused on the Carrizales Norte discovery and will include three horizontal wells. Low risk step-out and exploration wells are also planned at the Mateguafa Attic and Baquiano prospects. The 2024 capital program will be self-funded by a combination of cash flow from operations and cash reserves.

Marshall Abbott, CEO of Arrow Exploration Corp., commented:

"Arrow continues to grow, recording its strongest quarter to date. The 2023 drilling program, including the CN discovery, added significant production and reserves to the Company and established a new core area. Additional low risk prospects have been identified using our recently acquired 3D seismic data. The Company plans to increase operational tempo in aggressively developing the Carrizale, Ubaque and C7 discoveries while simultaneously drilling low risk exploration wells along proven fault fairways. The Board remains confident in the Arrow team to execute on an aggressive exploitation campaign pursuing our opportunity rich portfolio and getting shareholder value to the next level."

FINANCIAL AND OPERATING HIGHLIGHTS

 
                                            Three months       Nine months        Three months 
                                           ended September    ended September    ended September 
   (in United States dollars, except          30, 2023           30, 2023           30, 2022 
   as otherwise noted) 
---------------------------------------  -----------------  -----------------  ----------------- 
 Total natural gas and crude oil 
  revenues, net of royalties                    13,990,353         31,263,494          7,614,336 
 Funds flow from operations (1)                  8,690,907         16,209,551          4,606,124 
 Funds flow from operations (1) 
  per share - 
    Basic($)                                          0.04               0.07               0.02 
    Diluted ($)                                       0.03               0.05               0.00 
 Net income                                      7,153,120          9,385,440          2,041,955 
 Net income per share - 
   Basic ($)                                          0.03               0.04               0.01 
   Diluted ($)                                        0.02               0.03               0.01 
 Adjusted EBITDA (1)                             9,826,997         20,024,747          4,664,345 
 Weighted average shares outstanding 
  - 
   Basic                                       237,919,872        230,537,774        215,967,143 
   Diluted                                     295,875,232        295,092,336        288,235,624 
 Common shares end of period                   245,526,041        245,526,041        215,967,143 
 Capital expenditures                            5,471,561         16,613,512          4,836,860 
 Cash and cash equivalents                      12,891,190         12,891,190         11,376,702 
 Current Assets                                 18,652,504         18,652,504         16,870,695 
 Current liabilities                            13,321,524         13,321,524          9,478,383 
 Adjusted working capital(1)                    10,822,475         10,822,475          7,392,312 
 Long-term portion of restricted 
  cash(2)                                          637,793            637,793            598,192 
 Total assets                                   62,755,250         62,755,250         46,979,258 
 
 Operating 
---------------------------------------  -----------------  -----------------  ----------------- 
 Natural gas and crude oil production, 
  before royalties 
 Natural gas (Mcf/d)                                 2,012              2,261              1,917 
 Natural gas liquids (bbl/d)                             4                  4                  4 
 Crude oil (bbl/d)                                   2,178              1,730              1,179 
 Total (boe/d)                                       2,518              2,110              1,503 
 
 Operating netbacks ($/boe) (1) 
 Natural gas ($/Mcf)                                 $0.18            ($0.11)              $0.88 
 Crude oil ($/bbl)                                  $60.62             $57.64             $73.69 
 Total ($/boe)                                      $52.67             $47.15             $56.75 
 

(1) Non-IFRS measures - see "Non-IFRS Measures" section

(2) Long term restricted cash not included in working capital

Discussion of Operating Results

The Company increased its production from new wells at CN which allowed the Company to continue to improve its operating results and EBITDA. There has been a decrease in the Company's natural gas production in Canada due to natural declines.

Average Production by Property

 
  Average Production Boe/d      Q3     Q2 2023   Q1 2023   Q4 2022   Q3 2022   Q2 2022 
                                2023 
---------------------------  -------  --------  --------  --------  --------  -------- 
 Oso Pardo                      93       130       138       115       104       112 
 Ombu (Capella)                 -         -        80        238       215       97 
 Rio Cravo Este (Tapir)       1,443     1,592     1,004      832       860       366 
 Carrizales Norte (Tapir)      642       57         -         -         -         - 
 Total Colombia               2,178     1,779     1,222     1,185     1,179      575 
 Fir, Alberta                   81       77        74        79        82        86 
 Pepper, Alberta               259       313       340       472       242       319 
---------------------------  -------  --------  --------  --------  --------  -------- 
 TOTAL (Boe/d)                2,518     2,169     1,635     1,736     1,503      980 
---------------------------  -------  --------  --------  --------  --------  -------- 
 

For the three months ended September 30, 2023, the Company's average production was 2,518 boe/d, which consisted of crude oil production in Colombia of 2,178 bbl/d, natural gas production of 2,012 Mcf/d and minor amounts of natural gas liquids from the Company's Canadian properties. The Company's Q3 2023 total production was 68% higher than its total production for the same period in 2022.

Discussion of Financial Results

During Q3 2023 the Company continued to realize good oil prices, offset by lower gas prices, as summarized below:

 
                                           Three months ended 
                                               September 30 
------------------------------------- 
                                         2023     2022     Change 
-------------------------------------  -------  -------  -------- 
 Benchmark Prices 
 AECO (C$/Mcf)                           $2.64    $3.83     (31%) 
 Brent ($/bbl)                          $92.59   $97.81      (5%) 
 West Texas Intermediate ($/bbl)        $77.35   $91.65     (16%) 
-------------------------------------  -------  -------  -------- 
 Realized Prices 
-------------------------------------  -------  -------  -------- 
 Natural gas, net of transportation 
  ($/Mcf)                                $1.95    $3.16     (38%) 
 Natural gas liquids ($/bbl)            $67.10   $82.69     (19%) 
 Crude oil, net of transportation 
  ($/bbl)                               $77.63   $90.90     (15%) 
-------------------------------------  -------  -------  -------- 
 Corporate average, net of transport 
  ($/boe)(1)                            $68.80   $73.02      (6%) 
-------------------------------------  -------  -------  -------- 
 

(1)Non-IFRS measure

Operating Netbacks

The Company also continued to realize strong oil operating netbacks, as summarized below:

 
                                      Three months ended     Nine months ended 
                                         September 30           September 30 
                                       2023        2022       2023       2022 
----------------------------------  ---------  ----------  ---------  --------- 
 Natural Gas ($/Mcf) 
 Revenue, net of transportation 
  expense                               $1.95       $3.16      $2.01      $4.05 
 Royalties                            ($0.05)     ($0.35)    ($0.02)    ($0.64) 
 Operating expenses                   ($1.72)     ($1.93)    ($2.10)    ($2.24) 
----------------------------------  ---------  ----------  ---------  --------- 
 Natural Gas operating netback(1)       $0.18       $0.88    ($0.11)      $1.18 
----------------------------------  ---------  ----------  ---------  --------- 
 Crude oil ($/bbl) 
 Revenue, net of transportation 
  expense                              $77.63      $90.90     $73.16     $91.00 
 Royalties                            ($9.45)    ($10.97)    ($9.02)   ($10.61) 
 Operating expenses                   ($7.56)     ($6.24)    ($6.50)   ($10.09) 
----------------------------------  ---------  ----------  ---------  --------- 
 Crude Oil operating netback(1)        $60.62      $73.69     $57.64     $70.30 
----------------------------------  ---------  ----------  ---------  --------- 
 Corporate ($/boe) 
 Revenue, net of transportation 
  expense                              $68.80      $73.02     $62.14     $61.75 
 Royalties                            ($8.21)      (8.72)    ($7.40)    ($7.59) 
 Operating expenses                   ($7.92)      (7.55)    ($7.59)   ($11.50) 
----------------------------------  ---------  ----------  ---------  --------- 
 Corporate Operating netback 
  (1)                                  $52.67      $56.75     $47.15     $42.66 
----------------------------------  ---------  ----------  ---------  --------- 
 

(1) Non-IFRS measure

The operating netbacks of the Company remained healthy during 2023 due to several factors, principally the increase in production from its Colombian assets, even factoring in decreased crude oil prices. This was offset by decreases in natural gas prices and operating expenses for natural gas.

During the first nine months of 2023, the Company incurred in $16 million of capital expenditures, primarily in connection with the drilling of the three RCE and CN wells, civil works completed in Rio Cravo and shooting 125 km(2) of 3D seismic in the Tapir block to highlight existing leads and prospects for drilling. This acceleration in operational tempo is expected to continue during the remainder of 2023 and into 2024, funded by cash on hand and cashflow.

For further Information, contact:

 
 Arrow Exploration 
 Marshall Abbott, CEO                    +1 403 651 5995 
 Joe McFarlane, CFO                      +1 403 818 1033 
 
 Brookline Public Relations, Inc. 
  Shauna MacDonald                         +1 403 538 5645 
 
 Canaccord Genuity (Nominated Advisor 
  and Joint Broker) 
 Henry Fitzgerald-O'Connor 
  James Asensio 
  Gordon Hamilton                        +44 (0)20 7523 8000 
 
   Auctus Advisors (Joint Broker) 
 Jonathan Wright                         + 44 (0)7711 627449 
 Rupert Holdsworth Hunt 
 
   Camarco (Financial PR) 
 Andrew Turner                           +44 (0)20 3781 8331 
 Rebecca Waterworth 
 Kirsty Duff 
 

About Arrow Exploration Corp.

Arrow Exploration Corp. (operating in Colombia via a branch of its 100% owned subsidiary Carrao Energy S.A.) is a publicly traded company with a portfolio of premier Colombian oil assets that are underexploited, under-explored and offer high potential growth. The Company's business plan is to expand oil production from some of Colombia's most active basins, including the Llanos, Middle Magdalena Valley (MMV) and Putumayo Basin. The asset base is predominantly operated with high working interests, and the Brent-linked light oil pricing exposure combines with low royalties to yield attractive potential operating margins. By way of a private commercial contract with the recognized interest holder before Ecopetrol S.A., Arrow is entitled to receive 50% of the production from the Tapir block. The formal assignment to the Company is subject to Ecopetrol's consent. Arrow's seasoned team is led by a hands-on executive team supported by an experienced board. Arrow is listed on the AIM market of the London Stock Exchange and on TSX Venture Exchange under the symbol "AXL".

Forward-looking Statements

This news release contains certain statements or disclosures relating to Arrow that are based on the expectations of its management as well as assumptions made by and information currently available to Arrow which may constitute forward-looking statements or information ("forward-looking statements") under applicable securities laws. All such statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that Arrow anticipates or expects may, could or will occur in the future (in whole or in part) should be considered forward-looking statements. In some cases, forward-looking statements can be identified by the use of the words "continue", "expect", "opportunity", "plan", "potential" and "will" and similar expressions. The forward-looking statements contained in this news release reflect several material factors and expectations and assumptions of Arrow, including without limitation, Arrow's evaluation of the impacts of COVID-19, the potential of Arrow's Colombian and/or Canadian assets (or any of them individually), the prices of oil and/or natural gas, and Arrow's business plan to expand oil and gas production and achieve attractive potential operating margins. Arrow believes the expectations and assumptions reflected in the forward-looking statements are reasonable at this time, but no assurance can be given that these factors, expectations, and assumptions will prove to be correct.

The forward-looking statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The forward-looking statements contained in this news release are made as of the date hereof and the Company undertakes no obligations to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Glossary

Bbl/d or bop/d: Barrels per day

$/Bbl: Dollars per barrel

Mcf/d: Thousand cubic feet of gas per day

Mmcf/d: Million cubic feet of gas per day

$/Mcf: Dollars per thousand cubic feet of gas

Mboe: Thousands of barrels of oil equivalent

Boe/d: Barrels of oil equivalent per day

$/Boe: Dollars per barrel of oil equivalent

MMbbls: Million of barrels

BOE's may be misleading particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bblis based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Non--IFRS Measures

The Company uses non-IFRS measures to evaluate its performance which are measures not defined in IFRS. Working capital, funds flow from operations, realized prices, operating netback, adjusted EBITDA, and net debt as presented do not have any standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other entities. The Company considers these measures as key measures to demonstrate its ability to generate the cash flow necessary to fund future growth through capital investment, and to repay its debt, as the case may be. These measures should not be considered as an alternative to, or more meaningful than net income (loss) or cash provided by operating activities or net loss and comprehensive loss as determined in accordance with IFRS as an indicator of the Company's performance. The Company's determination of these measures may not be comparable to that reported by other companies.

Arrow Exploration Corp.

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHSED SEPTEMBER 30, 2023 AND 2022

IN UNITED STATES DOLLARS

(UNAUDITED)

Notice of No Auditor Review of the Interim Condensed Consolidated Financial Statements

as at and for the three and nine months ended September 30, 2023

Under National Instrument 51-102, Part 4, subsection 4.3 (3)(a), if an auditor has not performed a review of the interim condensed consolidated financial statements, they must be accompanied by a notice indicating that an auditor has not reviewed the financial statements.

The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared by and are the responsibility of the Company's management.

The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity's auditor.

Arrow Exploration Corp.

Interim Condensed Consolidated Statements of Financial Position

In United States Dollars

(Unaudited)

 
 As at                                        Notes                  September                 December 31, 
                                                                      30, 2023                      2022 
         ASSETS 
 Current assets 
 
 Cash                                                      $              12,891,190   $              13,060,968 
 Restricted cash and deposits                         3                      218,178                     210,654 
 Trade and other receivables                          4                    2,797,577                   2,568,290 
 Taxes receivable                                     5                    1,735,143                     801,177 
 Deposits and prepaid expenses                                               124,899                     157,459 
 Inventory                                                                   885,517                     705,677 
---------------------------------------  --------------  ---  ----------------------      ---------------------- 
                                                                          18,652,504                  17,504,225 
---------------------------------------  --------------  ---  ----------------------      ---------------------- 
 Non-current assets 
 Deferred income taxes                                                     1,933,639                     872,286 
 Restricted cash and deposits                         3                      637,793                     608,127 
 Exploration and evaluation                           6                    3,182,010                           - 
 Property and equipment                               7                   38,349,304                  34,205,610 
---------------------------------------  --------------  ---  ----------------------      ---------------------- 
 
 Total Assets                                              $              62,755,250   $              53,190,248 
---------------------------------------  --------------  ---  ----------------------      ---------------------- 
 
         LIABILITIES AND SHAREHOLDERS' 
          EQUITY 
 Current Liabilities 
 Accounts payable and accrued 
  liabilities                                              $               6,549,995   $               5,850,823 
 Lease obligation                                     9                      103,718                      41,434 
 Promissory note                                      8                            -                   1,899,294 
 Derivative liability                                11                    5,491,495                   9,540,423 
 Income taxes                                                              1,176,316                   1,488,916 
---------------------------------------  --------------  ---  ----------------------      ---------------------- 
                                                                          13,321,524                  18,820,890 
---------------------------------------  --------------  ---  ----------------------      ---------------------- 
 Non-current liabilities 
 Lease obligations                                    9                      219,611                      22,317 
 Other liabilities                                                           588,393                      80,484 
 Deferred income taxes                                                     2,198,419                   5,066,684 
 Decommissioning liability                           10                    3,759,347                   3,303,301 
 Total liabilities                                                        20,087,294                  27,293,676 
---------------------------------------  --------------  ---  ----------------------      ---------------------- 
 
 Shareholders' equity 
            Share capital                            12                   64,833,800                  57,810,735 
 Contributed surplus                                                       2,010,851                   1,570,491 
 Deficit                                                                (23,453,842)                (32,839,282) 
 Accumulated other comprehensive 
  loss                                                                     (722,853)                   (645,372) 
---------------------------------------  --------------  ---  ----------------------      ---------------------- 
 Total shareholders' equity                                               42,667,956                  25,896,572 
---------------------------------------  --------------  ---  ----------------------      ---------------------- 
 Total liabilities and shareholders' 
  equity                                                   $              62,755,250   $              53,190,248 
---------------------------------------  --------------  ---  ----------------------      ---------------------- 
 

Commitments and contingencies (Note 13)

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

On behalf of the Board:

signed "Gage Jull" Director signed "Ian Langley" Director

Gage Jull Ian Langley

Arrow Exploration Corp.

Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

In United States Dollars

(Unaudited)

 
                                             For the three months              For the nine months 
                                                     ended                            ended 
                                                  September 30                     September 30 
                                 Notes       2023            2022            2023             2022 
------------------------------  ------  --------------  --------------  --------------  ---------------- 
 
 Revenue 
  Oil and natural gas                     $ 15,884,660     $ 8,647,846    $ 35,487,485      $ 18,290,284 
 Royalties                                 (1,894,307)     (1,033,510)     (4,223,991)       (2,248,382) 
                                            13,990,353       7,614,336      31,263,494        16,041,902 
                                        --------------  --------------  --------------  ---------------- 
 
 Expenses 
   Operating                                 1,829,833         894,160       4,338,913         3,407,076 
   Administrative                            1,924,089       2,322,291       6,790,964         4,880,605 
   Environmental                               356,857               -         356,857                 - 
   Share based payments           12           149,102         110,876         440,360           214,712 
   Financing costs: 
     Accretion                    10            34,343          54,272          95,638           144,247 
     Interest                                    9,461         123,394         131,697           367,913 
     Other                                      89,281          41,075         238,135           285,104 
   Derivative loss (gain)         11       (1,191,385)       (543,659)       (109,613)         4,968,934 
   Foreign exchange gain                      (28,003)       (234,068)       (109,959)         (229,526) 
   Depletion and depreciation                3,972,850       1,809,340      10,067,403         3,649,932 
    Other expense (income)                    (99,595)        (32,393)       (318,203)          (52,595) 
    Transaction costs                          180,175               -         180,175                 - 
                                        --------------  --------------  --------------  ---------------- 
                                             7,227,008       4,545,288      22,102,367        17,636,402 
                                        --------------  --------------  --------------  ---------------- 
 
 Income (loss) before 
  taxes                                      6,763,345       3,069,048       9,161,127       (1,594,500) 
 
 Income taxes (recovery) 
   Current                                   1,317,437       1,027,093       3,705,305         1,027,093 
   Deferred                                (1,707,212)               -     (3,929,618)                 - 
                                        --------------  --------------  --------------  ---------------- 
                                             (389,775)       1,027,093       (224,313)         1,027,093 
 
 Net income (loss) 
  for the period                             7,153,120       2,041,955       9,385,440       (2,621,593) 
 
 Other comprehensive 
  income (loss) 
  Foreign exchange                              34,103         173,067        (77,481)           253,645 
                                        --------------  --------------  --------------  ---------------- 
 
 Net income (loss) 
  and comprehensive income 
  (loss) for the period                    $ 7,187,223     $ 2,215,022     $ 9,307,959     $ (2,367,948) 
 
 Net income (loss) 
  per share 
       - basic                                  $ 0.03          $ 0.01          $ 0.04          $ (0.01) 
 
          *    diluted                          $ 0.02          $ 0.01          $ 0.03          $ (0.01) 
 
 
 Weighted average shares 
  outstanding 
       - basic                             237,919,872     215,967,143     230,537,774       214,687,656 
 
          *    diluted                     295,875,232     288,235,624     295,092,336       276,272,070 
 
 
 
 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

Arrow Exploration Corp.

Interim Condensed Statements of Changes in Shareholders' Equity

In United States Dollars

(Unaudited)

 
 
 
 
                                                                      Accumulated 
                                                 Contributed             other 
                                 Share             Surplus           comprehensive          Deficit            Total 
                                Capital                                  loss                                  Equity 
----------------------  ---  -----------      --------------      ----------------      -------------      ----------- 
 
 Balance January 
  1, 2023                 $   57,810,735   $       1,570,491   $         (645,372)   $   (32,839,282)   $   25,896,572 
 
 Issuances of common 
  shares, net                  7,023,065                   -                     -                  -        7,023,065 
 
 Net income for 
  the period                           -                   -                     -          9,385,440        9,385,440 
 
 Othe comprehensive 
  loss for the period                  -                   -              (77,481)                  -         (77,481) 
 
 Share-based compensation              -             440,360                     -                  -          440,360 
 
 Balance September 
  30, 2023                $   64,833,800   $       2,010,851   $         (722,853)   $   (23,453,842)   $   42,667,956 
 
 
 
 
 
 
                                                                     Accumulated 
                                                Contributed             other 
                                Share             Surplus           comprehensive          Deficit             Total 
                               Capital                                  loss                                  Equity 
---------------------  ---  -----------      --------------      ----------------      -------------      ------------ 
 
 Balance January 
  1, 2022                $   56,698,237   $       1,249,418   $         (803,736)   $   (33,185,806)   $    23,958,113 
 
 Subscription of 
  common shares, 
  net                           603,147                   -                     -                  -           603,147 
 
 Options settled 
  in cash                             -             (6,621)                     -                  -           (6,621) 
 
 Net loss for the 
  period                              -                   -                     -        (2,621,593)       (2,621,593) 
 
 Other comprehensive 
  income for the 
  period                              -                   -               253,645                  -           253,645 
 
 Share based payments                 -             214,712                     -                  -           214,712 
 
 Balance September 
  30, 2022               $   57,301,384   $       1,457,509   $         (550,091)   $   (35,807,399)   $    22,401,403 
 
 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

Arrow Exploration Corp.

Interim Condensed Consolidated Statements of Cash Flows

In United States Dollars

(Unaudited)

 
 
 For nine months ended September 30,                              2023           2022 
-----------------------------------------------------------  -------------  -------------- 
  Cash flows provided by operating activities 
   Net income (loss)                                           $ 9,385,440   $ (2,621,593) 
   Items not involving cash: 
       Share based payment                                         440,360         214,712 
       Deferred income tax                                     (3,929,618)         - 
       Depletion and depreciation                               10,067,403       3,649,932 
       Interest on leases                                           12,237           7,932 
       Interest on promissory note, net of forgiveness             119,460         359,981 
       Accretion                                                    95,638         144,247 
       Foreign exchange gain                                     (224,264)       (133,342) 
       (Gain) loss on derivative liability                       (109,613)       4,968,934 
       Environmental provision                                     356,857               - 
      Gain in long-term debt forgiveness                                 -         (7,798) 
   Changes in non--cash working capital balances: 
       Restricted cash                                            (37,190)         134,360 
       Trade and other receivables                               (229,288)     (3,448,281) 
       Taxes receivable                                          (933,966)       (361,267) 
       Deposits and prepaid expenses                                32,561         160,428 
       Inventory                                                 (179,840)       (458,575) 
       Accounts payable and accrued liabilities                  (654,363)       1,465,021 
       Income tax payable                                        (312,600)       1,027,093 
   Settlement of decommissioning obligations                       (4,349)        (77,180) 
  Cash provided by operating activities                         13,894,865       5,024,604 
                                                             -------------  -------------- 
 
  Cash flows used in investing activities 
   Additions to exploration and evaluation assets              (3,182,010)               - 
   Additions to property and equipment                        (13,431,502)     (5,562,525) 
   Changes in non-cash working capital                           1,538,033         691,963 
                                                             -------------  -------------- 
  Cash flows used in investing activities                     (15,075,479)     (4,870,562) 
                                                             -------------  -------------- 
 
  Cash flows provided by financing activities 
       Common shares issued                                      3,025,568         280,072 
       Payment of promissory note, principal and interests     (2,018,577)        (23,394) 
       Lease payments                                             (54,813)        (29,774) 
  Cash flows provided by financing activities                      952,178         226,904 
 
  Effect of changes in the exchange rate on cash                    58,658         117,248 
  (Decrease) increase in cash                                    (169,778)         498,194 
 
  Cash, beginning of period                                     13,060,968      10,878,508 
                                                             -------------  -------------- 
 
             Cash, end of period                                12,891,190      11,376,702 
                                                             =============  ============== 
 
  Supplemental information 
   Interest paid                                               $ 415,026      $ - 
   Taxes paid                                                  $ 1,119,208    $ - 
 
 
 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

   1.    Corporate Information 

Arrow Exploration Corp. ("Arrow" or "the Company") is a public junior oil and gas company engaged in the acquisition, exploration and development of oil and gas properties in Colombia and in Western Canada. The Company's shares trade on the TSX Venture Exchange and the AIM Market of the London Stock Exchange plc under the symbol AXL. The head office of Arrow is located at 203, 2303 - 4th Street SW, Calgary, Alberta, Canada, T2S 2S7 and the registered office is located at 600, 815 - 8th Avenue SW, Calgary, Alberta, Canada, T2P 3P2.

   2.    Basis of Presentation 

Statement of compliance

These interim condensed consolidated financial statements (the "Financial Statements") have been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting. These Financial Statements were authorized for issue by the board of directors of the Company on November 27, 2023. They do not contain all disclosures required by International Financial Reporting Standards ("IFRS") for annual financial statements and, accordingly, should be read in conjunction with the audited consolidated financial statements as at December 31, 2022.

These Financial Statements have been prepared on the historical cost basis, except for financial assets and liabilities recorded in accordance with IFRS 9. The Financial Statements have been prepared using the same accounting policies and methods as the consolidated financial statements for the year ended December 31, 2022, except for the adoption of new accounting standards effective January 1, 2023. In preparing these condensed consolidated financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the financial statements for the year ended December 31, 2022.

Adoption of New Accounting Standards

The Company adopted amendments published by IASB to IAS 8 Changes in Estimates vs Changes in Accounting Policies and to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements. These amendments were adopted by the Company from January 1, 2023 but they did not have a material impact on the Consolidated Financial Statements.

   3.    Restricted Cash and deposits 
 
                                                      September                   December 
                                                        30 ,                       31, 2022 
                                                         2023 
--------------------------------  ----------  -----------------  --------  ---------------- 
 
 
       Colombia (i)                        $            255,986         $           248,462 
       Canada (ii)                                      599,985                     570,319 
                  Sub-total                             855,971                     818,781 
  Long-term portion                                   (637,793)                   (608,127) 
  Current portion of restricted 
   cash and deposits                       $            218,178         $           210,654 
                                              =================            ================ 
 

(i) Balance comprised of deposits held as collateral to guarantee abandonment expenditures in the Tapir and Santa Isabel blocks.

(ii) Pursuant to Alberta government regulations, the Company was required to keep a $325,399 (CAD $439,966; 2022: $424,398) deposit for the Company's liability rating management ("LMR"), which is held by a bank with interest paid to the Company. The remaining $337,818 pertain to commercial deposits with customers, lease and other deposits held in Canada.

   4.    Trade and other receivables 
 
                                                       September                   December 
                                                          30,                       31, 2022 
                                                          2023 
---------------------------------  ----------  -----------------  --------  ---------------- 
 
       Trade receivables, net of 
        advances                            $          2,402,045         $           847,432 
       Other accounts receivable                         395,532                   1,720,858 
 
                                            $          2,797,577         $         2,568,290 
                                               =================            ================ 
 

As at December 31, 2022, other accounts receivable included a $1,070,825 receivable from a partner in the Tapir block and corresponds to reimbursable capital expenditures incurred on the Tapir block, which have been subsequently recovered.

   5.    Taxes receivable 
 
                                                           September                   December 
                                                              30,                       31, 2022 
                                                              2023 
-------------------------------------  ----------  -----------------  --------  ---------------- 
 
       Value-added tax (VAT) credits                         175,217         $                 - 
        recoverable                             $ 
       Income tax withholdings and 
        advances, net                                      1,559,926                     801,177 
 
                                                $          1,735,143         $           801,177 
                                                   =================            ================ 
 

The VAT recoverable balance pertains to non-compensated value-added tax credits originated in Colombia as operational and capital expenditures are incurred. The Company is entitled to compensate or claim for the reimbursement of these VAT credits.

   6.    Exploration and Evaluation 
 
                                                    September                      December 
                                                       30,                          31, 2022 
                   2023 
  -----------------------------  ----------------------------------------  ------------------ 
 
 Balance, beginning of the 
  period                                 $                   -          $           6,964,506 
 Additions, net                                      3,182,010                              - 
 Reclassification to Property 
  and Equipment                                                          -         (6,964,506) 
 Balance, end of the period                          3,182,010          $                   - 
                                         $ 
                                            ==================             ================== 
 

During 2023, the Company incurred in exploration and evaluation assets related to the acquisition and interpretation of 135 square kilometers of 3D seismic data in the Tapir block to confirm or identify leads to additional prospective areas within such block.

   7.    Property and Equipment 
 
                                         Oil and              Right of 
   Cost                               Gas Properties           Use and               Total 
                                                             Other Assets 
-----------------------------  ---------------------  -------------------  ------------------ 
 Balance, December 31, 2021             $ 32,160,917            $ 183,485        $ 32,344,402 
 Additions                                 7,663,062               50,671           7,713,733 
 Transfers from exploration 
  and evaluation assets                    6,964,506                    -           6,964,506 
 Decommissioning adjustment                  756,541                    -             756,541 
 Balance, December 31, 2022             $ 47,545,026            $ 234,156        $ 47,779,182 
-----------------------------  ---------------------  -------------------  ------------------ 
 Additions                                13,446,292              310,061          13,756,353 
 Decommissioning adjustment                  442,757                    -             442,757 
-----------------------------  ---------------------  -------------------  ------------------ 
 Balance, September 30, 2023            $ 61,434,075            $ 544,217        $ 61,978,292 
-----------------------------  ---------------------  -------------------  ------------------ 
 
 
 Accumulated depletion and 
  depreciation and impairment 
--------------------------------  ------------------  -------------------------  ---------------- 
 Balance, December 31, 2021             $ 16,692,145              $ 114,965          $ 16,807,110 
 Depletion and depreciation                5,482,218                 46,271             5,528,489 
 Reversals net of impairment 
  loss                                   (9,020,654)                      -           (9,020,654) 
--------------------------------  ------------------  ---------------------  -------------------- 
 Balance, December 31, 2022             $ 13,153,709              $ 161,236          $ 13,314,945 
--------------------------------  ------------------  ---------------------  -------------------- 
 Depletion and depreciation               10,017,547                 49,856            10,067,403 
 Balance, September 30, 2023            $ 23,171,256              $ 211,092          $ 23,382,348 
--------------------------------  ------------------  ---------------------  -------------------- 
 
   Foreign exchange 
--------------------------  ------------------------  -----------------  ------------------------ 
 Balance December 31, 
  2021                                     $ 318,617              $ (3,457)                $ 315,160 
 Effects of movements 
  in foreign 
  exchange rates                           (568,525)                (5,262)                (573,787) 
--------------------------  ------------------------  ---------------------  ----------------------- 
 Balance December 31, 
  2022                                   $ (249,908)              $ (8,719)              $ (258,627) 
--------------------------  ------------------------  ---------------------  ----------------------- 
 Effects of movements 
  in foreign 
  exchange rates                              12,771                  (784)                   11,987 
 Balance, September 30, 
  2023                                   $ (237,137)              $ (9,503)              $ (246,640) 
--------------------------  ------------------------  ---------------------  ----------------------- 
 
 
 
 Net Book Value 
 Balance December 31, 2022           $ 34,141,409         $ 64,201        $ 34,205,610 
 Balance, September 30, 2023         $ 38,025,682        $ 323,622        $ 38,349,304 
 

Effective February 9, 2023, the Agencia Nacional de Hidrocarburos ("ANH") approved the suspension of the obligations and operations of the OMBU contract due to force majeure circumstances generated by the blockades and social unrest around the Capella field. The suspension was for an initial term of three months, but it has been extended for nine additional months. The Company, together with its partner and the ANH, is monitoring this suspension to define next steps.

During 2023, the Company entered in a new office and vehicles leases for its corporate offices for $302,930 and has been recognized as a right-of-use assets (see note 9).

   8.      Promissory Note 

The promissory note was issued to Canacol Energy Ltd. ("Canacol"), a related party to the Company, as partial consideration in the acquisition of Carrao Energy S.A. from Canacol. The promissory note bore interest at 15% per annum, and, on October 18, 2021, Arrow and Canacol entered into a Seventh Amended and Restated Promissory Note agreement. On June 30, 2023, the Company paid the remaining balance of $2,018,577, including interest, and no other obligation is pending with Canacol under the Promissory Note.

   9.      Lease Obligations 

A reconciliation of the discounted lease obligation is set forth below:

 
                                                                     September         December 
                                                                        30,             31, 2022 
                                                                        2023 
                                                             -----------------  ---------------- 
Obligation, beginning of the period                                   $ 63,751          $ 54,692 
Additions                                                              302,930                 - 
Changes in existing lease                                                    -            44,701 
Lease payments                                                        (54,813)          (39,697) 
Interest                                                                12,237             9,696 
Effects of movements in foreign 
 exchange rates                                                          (776)           (5,641) 
                                                             -----------------  ---------------- 
Obligation, end of the period                                        $ 323,329          $ 63,751 
Current portion                                                      (103,718)          (41,434) 
                                                             -----------------  ---------------- 
Long-term portion                                                    $ 219,611          $ 22,317 
                                                             =================  ================ 
 

As at September 30, 2023, the Company has the following future lease obligations:

 
Less than one year                      $ 105,113 
2 - 5 years                               336,198 
                                        --------- 
Total lease payments                      441,311 
Amounts representing interest over 
 the term                               (117,982) 
                                        --------- 
Present value of the net obligation     $ 323,329 
                                        ========= 
 
   10.    Decommissioning Liability 

The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with the decommissioning of oil and gas properties.

 
                                              September                   December 
                                                 30,                       31, 2022 
                                                 2023 
                                      -----------------  --------  ---------------- 
Obligation, beginning of the period         $ 3,303,301                 $ 2,470,239 
Change in estimated cash flows                  554,238                     756,541 
Payments or settlements                         (4,349)                    (76,131) 
Accretion expense                                95,638                     199,521 
Disposals                                     (191,648)                   - 
Effects of movements in foreign 
 exchange rates                                   2,167                    (46,869) 
                                      -----------------  --------  ---------------- 
 
  Obligation, end of the period             $ 3,759,347                 $ 3,303,301 
                                      =================  ========  ================ 
 

T he obligation was calculated using a risk-free discount rate range of 2.50% to 3.75% in Canada (2022: 2.50% to 3.75%) and between 3.55% and 4.13% in Colombia (2022: 3.55% and 4.13%) with an inflation rate of 3.0% and 3.5%, respectively (2022: 3.0% and 3.5%). The majority of costs are expected to occur between 2023 and 2033. The undiscounted amount of cash flows, required over the estimated reserve life of the underlying assets, to settle the obligation, adjusted for inflation, is estimated at $4,943,923 (2022: $4,480,074) .

   11.    Derivative liability 

Derivative liability includes warrants issued and outstanding as follows:

 
                                September 30,              December 31, 
                                     2023                      2022 
Warrants                     Number       Amounts         Number    Amounts 
Balance beginning 
 of the period              67,837,418  $ 9,540,423   72,474,706  $ 4,692,303 
  Exercised               (27,124,110)  (3,997,497)  (4,637,288)    (598,509) 
  Fair value adjustment              -    (109,613)            -    5,974,674 
  Foreign exchange                   -       58,182            -    (528,045) 
                          ------------  -----------  -----------  ----------- 
Balance end of the 
 period                     40,713,308  $ 5,491,495   67,837,418  $ 9,540,423 
                          ============  ===========  ===========  =========== 
 

Each warrant is exercisable at GBP0.09 per new common share for 24 months from the issuance date and are measured at fair value quarterly using the Black-Scholes options pricing model. The fair value of warrants at September 30, 2023 and December 31, 2022 was estimated using the following assumptions:

 
                                        September 
                                           30, 
                                                           December 
                                           2023            31, 2022 
------------------------------  -----------------  ----------------- 
       Number outstanding 
        re-valued warrants             40,713,308         67,837,418 
       Fair value of warrants 
        outstanding                    GBP 0.1104          GBP0.1157 
       Risk free interest 
        rate                                4.82%              3.41% 
       Expected life                   0.07 years         0.82 years 
       Expected volatility                   133%               147% 
------------------------------  -----------------  ----------------- 
 

The following table summarizes the warrants outstanding and exercisable at September 30, 2023:

 
   Number 
      of        Exercise     Expiry date 
   warrants      price 
-----------  -----------  -------------- 
               GBP 0.09     October 24, 
 40,219,260                     2023 
               GBP 0.09    November 22, 
    494,048                     2023 
----------- 
 40,713,308 
=========== 
 

12. Share Capital

   (a)   Authorized: Unlimited number of common shares without par value 
   (b)   Issued: 
 
                           September 30, 2023        December 31, 2022 
                         -----------------------  ----------------------- 
Common shares              Shares      Amounts      Shares      Amounts 
                         -----------  ----------  -----------  ---------- 
Balance beginning of 
 the year                218,401,931  57,810,735  213,389,643  56,698,237 
  Issued from warrants 
   exercised              27,124,110   7,023,065    4,637,288   1,094,574 
  Issued from options 
   exercised                       -           -      375,000      17,924 
                         -----------  ----------  -----------  ---------- 
Balance at end of the 
 period                  245,526,041  64,833,800  218,401,931  57,810,735 
                         ===========  ==========  ===========  ========== 
 
   (c)   Stock options: 

The Company has a stock option plan that provides for the issuance to its directors, officers, employees and consultants options to purchase a number of non-transferable common shares not exceeding 10% of the common shares that are outstanding. The exercise price is based on the closing price of the Company's common shares on the day prior to the day of the grant. A summary of the status and changes of the Company stock option plan is presented below:

 
                                            September 30, 
                                                 2023                           December 31, 2022 
                             ------------------------------------  ------------------------------------ 
                                                        Weighted                              Weighted 
                                                         average                               average 
                                                         exercise                              exercise 
                                      Number              Price             Number              price 
          Stock Options              of options          (CAD $)           of options          (CAD $) 
---------------------------  ------------------  ----------------  ------------------  ---------------- 
       Beginning of period           20,590,000           $0.24            17,114,000           $0.18 
       Granted                        1,650,000           $0.33            10,028,332           $0.27 
       Expired/Forfeited            (1,375,000)           $0.46           (2,794,000)           $0.12 
       Exercised                              -             -             (3,758,332)           $0.11 
                             ------------------  ----------------  ------------------  ---------------- 
       End of period                 20,865,000           $0.24            20,590,000           $0.24 
                             ==================  ================  ==================  ================ 
       Exercisable, end 
        of period                     5,403,331           $0.26             3,395,000           $0.42 
                             ==================  ================  ==================  ================ 
 
 
                                             Weighted 
                                Exercise      Average                         Number 
                                  Price      Remaining                      Exercisable 
    Date of         Number        (CAD      Contractual      Date of         September 
     Grant        Outstanding      $)          Life           Expiry         30, 2023 
--------------  -------------  ---------  -------------  ---------------  ------------- 
 October 22, 
  2018                750,000    $1.15                    Oct. 22, 2028         750,000 
 May 3, 2019          270,000    $0.31                     May 3, 2029          270,000 
 March 20, 
  2020              1,200,000    $0.05                    Mar. 20, 2030       1,200,000 
 April 13, 
  2020              2,000,000    $0.05                    April 13, 2030      2,000,000 
 December                                                 June 13, 2024 
  13, 2021          5,966,668    $0.13                       and 2025                 - 
                                                          Dec. 9, 2023, 
 June 9, 2022       2,300,000    $0.28                     2024 and 2025        766,665 
 September                                                Mar. 7, 2024, 
  7, 2022           1,250,000    $0.26                     2025 and 2026        416,666 
 December                                                 June 21, 2024, 
  21, 2022          5,478,332    $0.28                     2025 and 2026              - 
 January 23,                                              July 23, 2024, 
  2023                650,000    $0.32                     2025 and 2026              - 
 September                                                Mar. 21, 2025, 
  21, 2023          1,000,000    $0.33                     2026 and 2027              - 
     Total         20,865,000    $0.23      2.44 years                        5,403,331 
==============  =============  =========  =============  ===============  ============= 
 

The Company recognized $149,102 and $440,360 as share-based compensation expense for the three and nine months ended September 30, 2023 (2022: $110,876 and $214,712), with a corresponding effect in the contributed surplus account.

   13.    Commitments and Contingencies 

Exploration and Production Contracts

The Company has entered into a number of exploration contracts in Colombia which require the Company to fulfill work program commitments and issue financial guarantees related thereto. In aggregate, the Company has outstanding exploration commitments of $17.8 million as at September 30, 2023. T he Company have made applications to cancel its commitments on the COR-39, Macaya and Los Picachos blocks.

 
                                     Less 
                                     than 
              Block                 1 year               1-3 years                Thereafter                Total 
---------------------   ------------------  ------------------------  ----------------------  ---------------------- 
            COR-39                       -                12,000,000                       -              12,000,000 
            Los 
             Picachos                    -                 1,970,000                       -               1,970,000 
            Macaya                       -                 3,830,000                       -               3,830,000 
                         -----------------  ------------------------  ----------------------  ---------------------- 
 
 
              Total                      -                17,800,000                       -              17,800,000 
                         =================  ========================  ======================  ====================== 
 

Contingencies

From time to time, the Company may be involved in litigation or has claims sought against it in the normal course of business operations. Management of the Company is not currently aware of any claims or actions that would materially affect the Company's reported financial position or results from operations. Under the terms of certain agreements and the Company's by-laws the Company indemnifies individuals who have acted at the Company's request to be a director and/or officer of the Company, to the extent permitted by law, against any and all damages, liabilities, costs, charges or expenses suffered by or incurred by the individuals as a result of their service.

Letters of Credit

At September 30, 2023, the Company had obligations under Letters of Credit ("LC's") outstanding totaling $2.8 million to guarantee work commitments on exploration blocks and other contractual commitments. In the event the Company fails to secure the renewal of the letters of credit underlying the ANH guarantees, or any of them, the ANH could decide to cancel the underlying exploration and production contract for a particular block, as applicable.

 
                         Current Outstanding Letters of Credit 
 
 Contract        Beneficiary        Issuer           Type           Amount 
                                                                       (US    Renewal 
                                                                        $)      Date 
--------------  -------------  ---------------  -------------  -----------  ---------- 
 SANTA ISABEL                                                                April 14, 
                     ANH        Carrao Energy    Abandonment      $563,894      2024 
                                                  Financial                  December 
                     ANH        Carrao Energy      Capacity     $1,672,162    31, 2023 
 CORE -                                                                      December 
  39                 ANH        Carrao Energy     Compliance      $100,000    31, 2023 
                                                  Financial                  April 14, 
 OMBU                ANH        Carrao Energy      Capacity       $436,300      2024 
--------------  -------------  ---------------  -------------  -----------  ---------- 
 Total                                                          $2,772,356 
                                                               =========== 
 
   14.    Risk Management 

The Company holds various forms of financial instruments. The nature of these instruments and the Company's operations expose the Company to commodity price, credit and foreign exchange risks. The Company manages its exposure to these risks by operating in a manner that minimizes its exposure to the extent practical.

   (a)    Commodity price risk 

Commodity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in commodity prices. Lower commodity prices can also impact the Company's ability to raise capital. Commodity prices for crude oil are impacted by world economic events that dictate the levels of supply and demand. From time to time the Company may attempt to mitigate commodity price risk through the use of financial derivatives. There were no derivative contracts during 2023 and 2022.

   (b)    Credit Risk 

Credit risk reflects the risk of loss if counterparties do not fulfill their contractual obligations. The majority of the Company's account receivable balances relate to petroleum and natural gas sales and balances receivables with partners in areas operated by the Company. The Company's policy is to enter into agreements with customers that are well established and well financed entities in the oil and gas industry such that the level of risk is mitigated.

In Colombia, a significant portion of the sales is with a producing company under an existing sale/offtake agreement with prepayment provisions and priced using the Brent benchmark. The Company's trade account receivables primarily relate to sales of crude oil and natural gas, which are normally collected within 25 days (in Canada) and up to 15 days in advance (in Colombia) of the month of production. Other accounts receivable mainly relate to balances owed by the Company's partner in one of its blocks, and are mainly recoverable through join billings. The Company has historically not experienced any collection issues with its customers and partners.

   (c)    Market Risk 

Market risk is comprised of two components: foreign currency exchange risk and interest rate risk.

   i)      Foreign Currency Exchange Risk 

The Company operates on an international basis and therefore foreign exchange risk exposures arise from transactions denominated in currencies other than the United States dollar. The Company is exposed to foreign currency fluctuations as it holds cash and incurs expenditures in exploration and evaluation and administrative costs in foreign currencies. The Company incurs expenditures in Canadian dollars, United States dollars and the Colombian peso and is exposed to fluctuations in exchange rates in these currencies. There are no exchange rate contracts in place.

   ii)       Interest Rate Risk 

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company is not currently exposed to interest rate risk as it borrows funds at a fixed coupon rate of 15% on the promissory notes.

   (d)    Liquidity Risk 

Liquidity risk includes the risk that, as a result of the Company's operational liquidity requirements:

   --      The Company will not have sufficient funds to settle a transaction on the due date; 
   --      The Company will be forced to sell financial assets at a value less than market value; or 
   --      The Company may be unable to settle or recover a financial asset. 

The Company's approach to managing its liquidity risk is to ensure, within reasonable means, sufficient liquidity to meet its liabilities when due, under both normal and unusual conditions, without incurring unacceptable losses or jeopardizing the Company's business objectives. The Company prepares annual capital expenditure budgets which are monitored regularly and updated as considered necessary. Petroleum and natural gas production is monitored daily to provide current cash flow estimates and the Company utilizes authorizations for expenditures on projects to manage capital expenditures. Any funding shortfall may be met in a number of ways, including, but not limited to, the issuance of new debt or equity instruments, further expenditure reductions and/or the introduction of joint venture partners.

   (e)     Capital Management 

The Company's objective is to maintain a capital base sufficient to provide flexibility in the future development of the business and maintain investor, creditor and market confidence. The Company manages its capital structure and makes adjustments in response to changes in economic conditions and the risk characteristics of the underlying assets. The Company considers its capital structure to include share capital, bank debt (when available), promissory notes and working capital, defined as current assets less current liabilities. In order to maintain or adjust the capital structure, from time to time the Company may issue common shares or other securities, sell assets or adjust its capital spending to manage current and projected debt levels. The Company monitors leverage and adjusts its capital structure based on its net debt level. Net debt is defined as the principal amount of its outstanding debt, less working capital items. In order to facilitate the management of its net debt, the Company prepares annual budgets, which are updated as necessary depending on varying factors including current and forecast crude oil prices, changes in capital structure, execution of the Company's business plan and general industry conditions. The annual budget is approved by the Board of Directors and updates are prepared and reviewed as required. The Company's capital includes the following:

 
                                          September          December 31, 
                                             30, 
                                             2023                 2022 
                                  -------------------  ------------------- 
      Working capital (deficit)           $ 5,330,980        $ (1,316,665) 
      Derivative liability                  5,491,495            9,540,423 
                                         $ 10,822,475          $ 8,223,758 
                                  ===================  =================== 
 
   15.    Segmented Information 

The Company has two reportable operating segments: Colombia and Canada. The Company, through its operating segments, is engaged primarily in oil exploration, development and production, and the acquisition of oil and gas properties. The Canada segment is also considered the corporate segment. The following tables show information regarding the Company's segments for the three and nine months ended and as at September 30:

 
 Three months ended                      Colombia                          Canada                        Total 
 September 
 30, 2023 
-------------------------  ---  --------------------------      ---------------------------      --------------------- 
 
 Revenue: 
 Oil Sales                   $                  15,496,501   $                            -   $             15,496,501 
 Natural gas and liquid 
  sales                                                  -                          388,159                    388,159 
 Royalties                                     (1,885,968)                          (8,339)                (1,894,307) 
 Expenses                                      (6,339,173)                        (887,835)                (7,227,008) 
 Income tax recovery                               389,775                                -                    389,775 
                                --------------------------      ---------------------------      --------------------- 
 Net income (loss)           $                   7,661,135   $                    (508,015)   $              7,153,120 
                           ---  --------------------------      ---------------------------      --------------------- 
 
 Nine months ended                       Colombia                          Canada                        Total 
 September 
 30, 2023 
-------------------------  ---  --------------------------      ---------------------------      --------------------- 
 
 Revenue: 
 Oil Sales                   $                  34,177,223   $                            -   $             34,177,223 
 Natural gas and liquid 
  sales                                                  -                        1,310,262                  1,310,262 
 Royalties                                     (4,214,621)                          (9,370)                (4,223,991) 
 Expenses                                     (14,799,562)                      (7,302,805)               (22,102,367) 
 Income tax recovery                               224,313                                -                    224,313 
 Net income (loss)           $                  15,387,353   $                  (6,001,913)   $              9,385,440 
                           ---  --------------------------      ---------------------------      --------------------- 
 
 
 As at September 30,                     Colombia                  Canada                     Total 
  2023 
-------------------------------  ----  -----------      ---------------------------  ---  ------------ 
 
 
 Current assets                     $   17,392,681   $                    1,259,823    $    18,652,504 
 Non-current: 
 Deferred income taxes                   1,933,639                                -          1,933,639 
 Restricted cash                            37,808                          599,985            637,793 
 Exploration and evaluation              3,182,010                                -          3,182,010 
 Property, plant and equipment          34,003,518                        4,345,786         38,349,304 
-------------------------------------  -----------      ---------------------------  ---  ------------ 
 
 Total Assets                       $   56,549,656   $                    6,205,594    $    62,755,250 
-------------------------------  ----  -----------      ---------------------------  ---  ------------ 
 
 
 Current liabilities                $    7,137,935   $                    6,183,589    $    13,321,524 
 Non-current liabilities: 
 Deferred income taxes                   2,198,419                                -          2,198,419 
 Other liabilities                         588,393                                -            588,393 
 Lease obligation                                -                          219,611            219,611 
 Decommissioning liability               3,202,198                          557,149          3,759,347 
 
 Total liabilities                  $   13,126,945   $                    6,960,349    $    20,087,294 
-------------------------------  ----  -----------      ---------------------------  ---  ------------ 
 
 
 Three months ended September          Colombia            Canada             Total 
  30, 2022 
------------------------------  ---  ------------      -------------      ------------- 
 Revenue: 
 Oil Sales                        $     8,056,780   $              -   $      8,056,780 
 Natural gas and liquid 
  sales                                         -            591,066            591,066 
 Royalties                              (972,243)           (61,267)        (1,033,510) 
 Expenses                             (2,435,749)        (2,109,539)        (4,545,288) 
 Income tax                           (1,027,093)                  -        (1,027,093) 
                                     ------------      -------------      ------------- 
 Net income (loss)                $     3,621,695   $    (1,579,740)   $    (2,041,955) 
                                ---  ------------      -------------      ------------- 
 
 Nine months ended September           Colombia            Canada             Total 
  30, 2022 
------------------------------  ---  ------------      -------------      ------------- 
 Revenue: 
 Oil Sales                        $    15,013,222   $              -   $     15,013,222 
 Natural gas and liquid 
  sales                                         -          3,277,062          3,277,062 
 Royalties                            (1,750,960)          (497,422)        (2,248,382) 
 Expenses                             (5,593,170)       (12,043,232)       (17,636,402) 
 Income tax                           (1,027,093)                  -        (1,027,093) 
 Net income (loss)                $     6,641,999   $    (9,263,592)   $    (2,621,593) 
                                ---  ------------      -------------      ------------- 
 
 
 As at September 30, 2022            Colombia          Canada           Total 
----------------------------  ---  -----------      -----------      ----------- 
 Current assets                 $   12,900,256   $    3,970,439   $   16,870,695 
 Non-current: 
 Deferred income taxes               4,839,785                -        4,839,785 
 Restricted cash                        37,808          560,384          598,192 
 Exploration and evaluation          6,964,506                -        6,964,506 
 Property and equipment             12,378,156        5,327,924       17,706,080 
 
 Total Assets                   $   37,120,511   $    9,858,747   $   46,979,258 
                              ---  -----------      -----------      ----------- 
 
 Current liabilities            $    4,622,600   $    4,855,783   $    9,478,383 
 Non-current liabilities: 
 Other liabilities                     177,500                -          177,500 
 Deferred income taxes               3,371,935                -        3,371,935 
 Lease obligation                            -           32,676           32,676 
 Decommissioning liability           2,296,091          535,310        2,831,401 
 Derivative liability                        -        8,685,960        8,685,960 
 Total liabilities              $   10,468,126   $   14,109,729   $   24,577,855 
                              ---  -----------      -----------      ----------- 
 
   16.    Subsequent events 

On November 17, 2023, the ANH confirmed the termination by mutual agreement of the Macaya block exploration and production contract. This contract included minimum work commitments for $3,830,000 for the Company, which have been waived by the ANH according to the terms of termination.

Arrow Exploration Corp.

MANAGEMENT's DISCUSSION AND ANALYSIS

THREE AND NINE MONTHSED SEPTEMBER 30, 2023

MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis ("MD&A") as provided by the management of Arrow Exploration Corp. ("Arrow" or the "Company"), is dated as of November 27, 2023 and should be read in conjunction with Arrow's interim condensed (unaudited) consolidated financial statements and related notes as at and for the three and nine months ended September 30, 2023 and 2022. Additional information relating to Arrow, including its annual consolidated financial statements and related notes for the years ended December 31, 2022 and 2021 (the "Annual Financial Statements"), is available under Arrow's profile on www.sedar.com .

Advisories

Basis of Presentation

The condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), and all amounts herein are expressed in United States dollars, unless otherwise noted, and all tabular amounts are expressed in United States dollars, unless otherwise noted. Additional information for the Company may be found on SEDAR at www.sedar.com.

Advisory Regarding Forward--Looking Statements

This MD&A contains certain statements or disclosures relating to Arrow that are based on the expectations of its management as well as assumptions made by and information currently available to Arrow which may constitute forward-looking statements or information ("forward-looking statements") under applicable securities laws. All such statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that Arrow anticipates or expects may, could or will occur in the future (in whole or in part) should be considered forward-looking statements. In some cases, forward-looking statements can be identified by the use of the words "believe", "continue", "could", "expect", "likely", "may", "outlook", "plan", "potential", "will", "would" and similar expressions. In particular, but without limiting the foregoing, this MD&A contains forward-looking statements pertaining to the following: the COVID-19 pandemic and its impact; tax liability; capital management strategy; capital structure; credit facilities and other debt; performance by Canacol (as defined herein) and the Company in connection with the Note (as defined herein) and letters of credit; Arrow's costless collar structure;; cost reduction initiatives; potential drilling on the Tapir block; capital requirements; expenditures associated with asset retirement obligations; future drilling activity and the development of the Rio Cravo Este structure on the Tapir Block. Statements relating to "reserves" and "resources" are deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated and can be profitably produced in the future.

The forward-looking statements contained in this MD&A reflect several material factors and expectations and assumptions of Arrow including, without limitation: current and anticipated commodity prices and royalty regimes; the impact of the COVID-19 pandemic; the financial impact of Arrow's costless collar structure; availability of skilled labour; timing and amount of capital expenditures; future exchange rates; commodity prices; the impact of increasing competition; general economic conditions; availability of drilling and related equipment; receipt of partner, regulatory and community approvals; royalty rates; changes in income tax laws or changes in tax laws and incentive programs; future operating costs; effects of regulation by governmental agencies; uninterrupted access to areas of Arrow's operations and infrastructure; recoverability of reserves; future production rates; timing of drilling and completion of wells; pipeline capacity; that Arrow will have sufficient cash flow, debt or equity sources or other financial resources required to fund its capital and operating expenditures and requirements as needed; that Arrow's conduct and results of operations will be consistent with its expectations; that Arrow will have the ability to develop its oil and gas properties in the manner currently contemplated; current or, where applicable, proposed industry conditions, laws and regulations will continue in effect or as anticipated; that the estimates of Arrow's reserves and production volumes and the assumptions related thereto (including commodity prices and development costs) are accurate in all material respects; that Arrow will be able to obtain contract extensions or fulfil the contractual obligations required to retain its rights to explore, develop and exploit any of its undeveloped properties; and other matters.

Arrow believes the material factors, expectations and assumptions reflected in the forward-looking statements are reasonable at this time but no assurance can be given that these factors, expectations and assumptions will prove to be correct. The forward-looking statements included in this MD&A are not guarantees of future performance and should not be unduly relied upon.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements including, without limitation: the impact of the COVID-19 pandemic; the impact of general economic conditions; volatility in commodity prices; industry conditions including changes in laws and regulations including adoption of new environmental laws and regulations, and changes in how they are interpreted and enforced; competition; lack of availability of qualified personnel; the results of exploration and development drilling and related activities; obtaining required approvals of regulatory authorities; counterparty risk; risks associated with negotiating with foreign governments as well as country risk associated with conducting international activities; commodity price volatility; fluctuations in foreign exchange or interest rates; environmental risks; changes in income tax laws or changes in tax laws and incentive programs; changes to pipeline capacity; ability to secure a credit facility; ability to access sufficient capital from internal and external sources; risk that Arrow's evaluation of its existing portfolio of development and exploration opportunities is not consistent with future results; that production may not necessarily be indicative of long term performance or of ultimate recovery; and certain other risks detailed from time to time in Arrow's public disclosure documents including, without limitation, those risks identified in Arrow's 2018 AIF, a copy of which is available on Arrow's SEDAR profile at www.sedar.com. Readers are cautioned that the foregoing list of factors is not exhaustive and are cautioned not to place undue reliance on these forward-looking statements.

Non--IFRS Measures

The Company uses non-IFRS measures to evaluate its performance which are measures not defined in IFRS. Working capital, funds flow from operations, realized prices, operating netback, adjusted EBITDA, and net debt as presented do not have any standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures for other entities. The Company considers these measures as key measures to demonstrate its ability to generate the cash flow necessary to fund future growth through capital investment, and to repay its debt, as the case may be. These measures should not be considered as an alternative to, or more meaningful than net income or cash provided by (used in) operating activities or net income and comprehensive income as determined in accordance with IFRS as an indicator of the Company's performance. The Company's determination of these measures may not be comparable to that reported by other companies.

Adjusted working capital is calculated as current assets minus current liabilities, excluding non-cash liabilities; funds from operations is calculated as cash flows from (used in) operating activities adjusted to exclude changes in non-cash working capital balances; realized price is calculated by dividing gross revenue by gross production, by product, in the applicable period; operating netback is calculated as total natural gas and crude revenues minus royalties, transportation costs and operating expenditures; adjusted EBITDA is calculated as net income adjusted for interest, income taxes, depreciation, depletion, amortization and other similar non-recurring or non-cash charges; and net debt (net cash) is defined as the principal amount of its outstanding debt, less working capital items excluding non-cash liabilities.

The Company also presents funds from operations per share, whereby per share amounts are calculated using weighted- average shares outstanding consistent with the calculation of net income per share.

A reconciliation of the non-IFRS measures is included as follows:

 
                                                         Three months            Nine months        Three months 
                                                        ended September         ended September    ended September 
   (in United States dollars)                              30, 2023                30, 2023           30, 2022 
-----------------------------------------------  ---------------------------  -----------------  ----------------- 
 Net income (loss)                                                 7,153,120          9,385,440          2,041,955 
 Add/(subtract): 
   Share based payments                                              149,102            440,360            110,876 
   Financing costs: 
      Accretion on decommissioning obligations                        34,343             95,638             54,272 
      Interest                                                         9,461            131,697            123,394 
      Other                                                           89,281            238,135             41,075 
   Depreciation and depletion                                      3,972,850         10,067,403          1,809,340 
   Derivative gain                                               (1,191,385)          (109,613)          (543,659) 
   Income tax (recovery) expense, current 
    and deferred                                                   (389,775)          (224,313)          1,027,093 
 Adjusted EBITDA (1)                                               9,826,997         20,024,747          4,664,345 
 
 Cash flows provided by operating activities                       6,523,732         13,894,865          5,221,497 
 Minus - Changes in non--cash working 
  capital balances: 
  Trade and other receivables                                        697,291            229,288          1,097,426 
  Restricted cash                                                   (65,890)             37,190          (291,841) 
  Taxes receivable                                                   765,277            933,966             58,264 
  Deposits and prepaid expenses                                     (68,109)           (32,561)          (171,610) 
  Inventory                                                            9,026            179,840            229,799 
  Accounts payable and accrued liabilities                         1,192,261            654,363        (1,537,411) 
  Income tax payable                                               (362,681)            312,600                  - 
 Funds flow from operations (1)                                    8,690,907         16,209,551          4,606,124 
 

(1) Non-IFRS measures

The term barrel of oil equivalent ("boe") is used in this MD&A. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 thousand cubic feet ("Mcf") of natural gas to one barrel of oil ("bbl") is used in the MD&A. This conversion ratio of 6:1 is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

FINANCIAL AND OPERATING HIGHLIGHTS

 
                                      Three months                   Nine months                  Three months 
                                     ended September               ended September               ended September 
  (in United States dollars,             30, 2023                      30, 2023                      30, 2022 
  except 
  as otherwise noted) 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
 Total natural gas and crude 
  oil 
  revenues, net of royalties                    13,990,353                    31,263,494                     7,614,336 
 
 Funds flow from operations 
  (1)                                            8,690,907                    16,209,551                     4,606,124 
 Funds flow from operations 
 (1) 
 per share - 
    Basic($)                                          0.04                          0.07                          0.02 
    Diluted ($)                                       0.03                          0.05                          0.00 
 Net income                                      7,153,120                     9,385,440                     2,041,955 
 Net income per share - 
   Basic ($)                                          0.03                          0.04                          0.01 
   Diluted ($)                                        0.02                          0.03                          0.01 
 Adjusted EBITDA (1)                             9,826,997                    20,024,747                     4,664,345 
 Weighted average shares 
 outstanding 
 - 
   Basic                                       237,919,872                   230,537,774                   215,967,143 
   Diluted                                     295,875,232                   295,092,336                   288,235,624 
 Common shares end of period                   245,526,041                   245,526,041                   215,967,143 
 Capital expenditures                            5,471,561                    16,613,512                     4,836,860 
 Cash and cash equivalents                      12,891,190                    12,891,190                    11,376,702 
 Current Assets                                 18,652,504                    18,652,504                    16,870,695 
 Current liabilities                            13,321,524                    13,321,524                     9,478,383 
 Adjusted working capital(1)                    10,822,475                    10,822,475                     7,392,312 
 Long-term portion of 
  restricted 
  cash(2)                                          637,793                       637,793                       598,192 
 Total assets                                   62,755,250                    62,755,250                    46,979,258 
 
 Operating 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
 
 Natural gas and crude oil 
 production, 
 before royalties 
 Natural gas (Mcf/d)                                 2,012                         2,261                         1,917 
 Natural gas liquids (bbl/d)                             4                             4                             4 
 Crude oil (bbl/d)                                   2,178                         1,730                         1,179 
 Total (boe/d)                                       2,518                         2,110                         1,503 
 
 Operating netbacks ($/boe) 
 (1) 
 Natural gas ($/Mcf)                                 $0.18                       ($0.11)                         $0.88 
 Crude oil ($/bbl)                                  $60.62                        $57.64                        $73.69 
 Total ($/boe)                                      $52.67                        $47.15                        $56.75 
 

(1) Non-IFRS measures - see "Non-IFRS Measures" section within this MD&A

(2) Long term restricted cash not included in working capital

The Company

Arrow is a junior oil and gas company engaged in the acquisition, exploration and development of oil and gas properties in Colombia and Western Canada. The Company's shares trade on the TSX Venture Exchange and the London AIM exchange under the symbol AXL.

The Company and Arrow Exploration Ltd. entered into an arrangement agreement dated June 1, 2018, as amended, whereby the parties completed a business combination pursuant to a plan of arrangement under the Business Corporations Act (Alberta) ("ABCA") on September 28, 2018. Arrow Exploration Ltd. and Front Range's then wholly-owned subsidiary, 2118295 Alberta Ltd., were amalgamated to form Arrow Holdings Ltd., a wholly-owned subsidiary of the Company (the "Arrangement"). On May 31, 2018, Arrow Exploration Ltd. entered in a share purchase agreement, as amended, with Canacol Energy Ltd. ("Canacol"), to acquire Canacol's Colombian oil properties held by its wholly-owned subsidiary Carrao Energy S.A. ("Carrao"). On September 27, 2018, Arrow Exploration Ltd. closed the agreement with Canacol.

On May 31, 2018, Arrow Exploration Ltd., entered into a purchase and sale agreement to acquire a 50% beneficial interest in a contract entered into with Ecopetrol S.A. pertaining to the exploration and production of hydrocarbons in the Tapir block from Samaria Exploration & Production S.A. ("Samaria"). On September 27, 2018, Arrow Exploration Ltd. closed the agreement with Samaria. As at June 30, 2023 the Company held an interest in six oil blocks in Colombia and oil and natural gas leases in seven areas in Canada as follows:

 
                                                  Gross Acres        Working Interest        Net Acres 
      COLOMBIA 
      Tapir                  Operated (1)              65,125                     50%           32,563 
      Oso Pardo              Operated                     672                    100%              672 
      Ombu                   Non-operated              56,482                     10%            5,648 
      COR-39                 Operated                  95,111                    100%           95,111 
      Los Picachos           Non-operated              52,772                   37.5%           19,790 
      Macaya                  Non-operated            195,255                   37.5%           73,221 
      Total Colombia                                  465,417                                  227,005 
      CANADA 
      Ansell                 Operated                     640                    100%              640 
      Fir                    Non operated               7,680                     32%            2,457 
      Penhold                Non-operated                 480                     13%               61 
      Pepper                 Operated                  23,680                    100%           23,680 
      Wapiti                 Non-operated               1,280                     13%              160 
      Total Canada                                     33,760                                   26,998 
------------------------------------------  -----------------  ----------------------  --------------- 
      TOTAL                                           499,177                                  254,003 
------------------------------------------  -----------------  ----------------------  --------------- 
 

The Company's primary producing assets are located in Colombia in the Tapir, Oso Pardo and Ombu blocks, with natural gas production in Canada at Fir and Pepper, Alberta.

Llanos Basin

Within the Llanos Basin, the Company is engaged in the exploration, development and production of oil within the Tapir block. In the Llanos Basin most oil accumulations are associated with three-way dip closure against NNE-SSW trending normal faults and can have pay within multiple reservoirs. The Tapir block contain large areas not yet covered by 3D seismic, and in Management's opinion offer substantial exploration upside.

(1) The Company's interest in the Tapir block is held through a private contract with Petrolco, who holds a 50% participating interest in, and is the named operator of, the Tapir contract with Ecopetrol. The formal assignment to the Company is subject to Ecopetrol's consent. The Company is the de facto operator pursuant to certain agreements with Petrolco (details of which are set out in Paragraph 16.13 of the Company's AIM Admission Document dated October 20, 2021).

Middle Magdalena Valley ("MMV") Basin

Oso Pardo Field

The Oso Pardo Field is located in the Santa Isabel Block in the MMV Basin. It is a 100% owned property operated by the Company. The Oso Pardo field is located within a Production Licence covering 672 acres. Three wells have been drilled to date within the licensed area.

Ombu E&P Contract - Capella Conventional Heavy Oil Discovery

The Caguan Basin covers an area of approximately 60,000 km(2) and lies between the Putumayo and Llanos Basins. The primary reservoir target is the Upper Eocene aged Mirador formation. The Capella structure is a large, elongated northeast-southwest fault-related anticline, with approximately 17,500 acres in closure at the Mirador level. The field is located approximately 250 km away from the nearest offloading station at Neiva, where production from Capella is trucked.

The Capella No. 1 discovery well was drilled in July 2008 and was followed by a series of development wells. The Company earned a 10% working interest in the Ombu E&P Contract by paying 100% of all activities associated with the drilling, completion, and testing of the Capella No. 1 well. The Capella field is currently suspended and temporarily shut in.

Fir, Alberta

The Company has an average non-operated 32% WI in 12 gross (3.84 net) sections of oil and natural gas rights and 17 gross (4.5 net) producing natural gas wells at Fir. The wells produce raw natural gas into the Cecilia natural gas plant where it is processed.

Pepper, Alberta

The Company holds a 100% operated WI in 37 sections of Montney P&NG rights on its Pepper asset in West Central Alberta. The 6-26-53-23W5M Montney gas well (West Pepper) is tied into the Galloway gas plant for processing. The 3-21-52-22W5M Montney gas well (East Pepper) is currently tied into the Sundance gas plant for processing. The majority of lands have tenure extending into 2025.

Three Months Ended September 30, 2023 Financial and Operational Highlights

-- Arrow recorded $13,990,353 in revenues, net of royalties, on crude oil sales of 199,617 bbls, 399 bbls of natural gas liquids ("NGL's") and 185,128 Mcf of natural gas sales;

   --      Funds flow from operations of $8,690,907; 
   --      Net income of $7,153,120 and adjusted EBITDA was $9,826,997; 
   --      Completed drilling of the Carrizales Norte-2 (CN-2) and Carrizales Norte-3 (CN-3) wells 

Results of Operations

The Company increased its production from new wells at Rio Cravo Este (RCE-3, RCE-4 and RCE-5) and CN-1. These have allowed the Company to continue to improve its operating results and EBITDA. There has also been a decrease in the Company's natural gas production in Canada due to natural declines.

Average Production by Property

 
 Average Production Boe/d    Q3 2023   Q2 2023   Q1 2023   Q4 2022   Q3 2022   Q2 2022 
--------------------------  --------  --------  --------  --------  --------  -------- 
 Oso Pardo                     93        130       138       115       104       112 
 Ombu (Capella)                 -         -        80        238       215       97 
 Rio Cravo Este (Tapir)       1,443     1,592     1,004      832       860       366 
 Carrizales Norte (Tapir)      642       57         -         -         -         - 
 Total Colombia               2,178     1,779     1,222     1,185     1,179      575 
 Fir, Alberta                  81        77        74        79        82        86 
 Pepper, Alberta               259       313       340       472       242       319 
--------------------------  --------  --------  --------  --------  --------  -------- 
 TOTAL (Boe/d)                2,518     2,169     1,635     1,736     1,503      980 
--------------------------  --------  --------  --------  --------  --------  -------- 
 

For the three months ended September 30, 2023, the Company's average production was 2,518 boe/d, which consisted of crude oil production in Colombia at 2,178 bbl/d, natural gas production of 2,012 Mcf/d and minor amounts of natural gas liquids from the Company's Canadian properties. The Company's Q3 2023 total production was 68% higher than its total production for the same period in 2022.

Average Daily Natural Gas and Oil Production and Sales Volumes

 
                                    Three months ended      Nine months ended 
                                       September 30            September 30 
-------------------------------- 
                                     2023       2022        2023       2022 
--------------------------------  ---------  ----------  ---------  --------- 
 Natural Gas (Mcf/d) 
 Natural gas production               2,012       1,917      2,261      2,853 
--------------------------------             ----------             --------- 
 Natural gas sales                    2,012       1,917      2,261      2,853 
--------------------------------             ----------             --------- 
 Realized Contractual Natural 
  Gas Sales                           2,012       1,917      2,261      2,853 
--------------------------------  ---------  ----------  ---------  --------- 
 Crude Oil (bbl/d) 
 Crude oil production                 2,178       1,179      1,730        730 
 Inventory movements and other          (8)       (216)       (19)      (264) 
--------------------------------  ---------  ----------  ---------  --------- 
 Crude Oil Sales                      2,170         963      1,711        466 
--------------------------------  ---------  ----------  ---------  --------- 
 Corporate 
 Natural gas production (boe/d)         336         319        376        475 
 Natural gas liquids(bbl/d)               4           4          4          5 
 Crude oil production (bbl/d)         2,178       1,179      1,730        730 
--------------------------------  ---------  ----------  ---------  --------- 
 Total production (boe/d)             2,518       1,503      2,110      1,211 
 Inventory movements and other 
  (boe/d)                               (8)       (216)       (19)      (264) 
--------------------------------  ---------  ----------  ---------  --------- 
 Total Corporate Sales (boe/d)        2,510       1,287      2,091        946 
--------------------------------  ---------  ----------  ---------  --------- 
 

During the three and nine months ended September 30, 2023 the majority of production was attributed to Colombia, where most of Company's blocks were producing. In Canada, the Company has two operated and two non-operated properties located in the province of Alberta at Fir, Pepper, Harley and Wapiti.

Natural Gas and Oil Revenues

 
                                            Three months ended              Nine months ended 
                                                September 30                   September 30 
------------------------------------- 
                                            2023           2022           2023           2022 
-------------------------------------  -------------  -------------  -------------  ------------- 
 Natural Gas 
 Natural gas revenues                        361,381        557,445      1,242,889      3,157,295 
 NGL revenues                                 26,778         33,621         67,373        119,766 
 Royalties                                   (8,339)       (61,267)        (9,370)      (497,422) 
-------------------------------------  -------------  -------------  -------------  ------------- 
   Revenues, net of royalties                379,820        529,799      1,300,892      2,779,640 
-------------------------------------  -------------  -------------  -------------  ------------- 
 Oil 
 Oil revenues                             15,496,501      8,056,780     34,177,223     15,013,222 
 Royalties                               (1,885,968)      (972,243)    (4,214,621)    (1,750,960) 
-------------------------------------  -------------  -------------  -------------  ------------- 
   Revenues, net of royalties             13,610,533      7,084,537     29,962,602     13,262,262 
-------------------------------------  -------------  -------------  -------------  ------------- 
 Corporate 
 Natural gas revenues                        361,381        557,445      1,242,889      3,157,295 
 NGL revenues                                 26,778         33,621         67,373        119,766 
 Oil revenues                             15,496,501      8,056,780     34,177,223     15,013,222 
-------------------------------------  -------------  -------------  -------------  ------------- 
 Total revenues                           15,884,660      8,647,846     35,487,485     18,290,284 
 Royalties                               (1,894,307)    (1,033,510)    (4,223,991)    (2,248,382) 
-------------------------------------  -------------  -------------  -------------  ------------- 
 Natural gas and crude oil revenues, 
  net of royalties                        13,990,353      7,614,336     31,263,494     16,041,902 
-------------------------------------  -------------  -------------  -------------  ------------- 
 

Natural gas and crude oil revenues, net of royalties, for the three and nine months ended September 30, 2023 was $13,990,353 (2022: $7,614,336) and $31,263,494 (2022: $16,041,902), respectively, which represents an increase of 95%. This significant increase is mainly due to increased oil production in Colombia, offset by decrease in oil prices and revenue in Canada.

Average Benchmark and Realized Prices

 
                                          Three months ended          Nine months ended 
                                             September 30                September 30 
------------------------------------ 
                                        2023     2022    Change    2023     2022     Change 
------------------------------------  -------  -------  -------  -------  --------  ------- 
 Benchmark Prices 
 AECO (C$/Mcf)                          $2.64    $3.83    (31%)    $2.77     $4.31    (36%) 
 Brent ($/bbl)                         $92.59   $97.81     (5%)   $82.26   $102.33    (20%) 
 West Texas Intermediate ($/bbl)       $77.35   $91.65    (16%)   $82.20    $98.15    (16%) 
------------------------------------  -------  -------  -------  -------  --------  ------- 
 Realized Prices 
------------------------------------  -------  -------  -------  -------  --------  ------- 
 Natural gas, net of transportation 
  ($/Mcf)                               $1.95    $3.16    (38%)    $2.01     $4.05    (50%) 
 Natural gas liquids ($/bbl)           $67.10   $82.69    (19%)   $63.30    $83.54    (24%) 
 Crude oil, net of transportation 
  ($/bbl)                              $77.63   $90.90    (15%)   $73.16    $91.00    (20%) 
------------------------------------  -------  -------  -------  -------  --------  ------- 
 Corporate average, net of 
  transport ($/boe)(1)                 $68.80   $73.02     (6%)   $62.14    $61.75       1% 
------------------------------------  -------  -------  -------  -------  --------  ------- 
 

(1)Non-IFRS measure

The Company realized prices of $68.80 and $62.14 per boe during the three and nine months ended September 30, 2023 (2022: $73.02 and $61.75), respectively, as commodity prices decreased in 2023 compared with 2022 .

Operating Expenses

 
                                Three months ended        Nine months ended 
                                    September 30             September 30 
--------------------------- 
                                  2023         2022       2023        2022 
---------------------------  -------------  ---------  ----------  ---------- 
 Natural gas & NGL's               319,439    341,156   1,302,246   1,742,933 
 Crude oil                       1,510,394    553,004   3,036,667   1,664,143 
---------------------------  -------------  ---------  ----------  ---------- 
  Total operating expenses       1,829,833    894,160   4,338,913   3,407,076 
---------------------------  -------------  ---------  ----------  ---------- 
 Natural gas ($/Mcf)                 $1.72      $1.93       $2.10       $2.24 
 Crude oil ($/bbl)                   $7.56      $6.24       $6.50      $10.09 
 Corporate ($/boe)(1)                $7.92      $7.55       $7.59      $11.50 
---------------------------  -------------  ---------  ----------  ---------- 
 

(1)Non-IFRS measure

During the three and nine months ended September 30, 2023, Arrow incurred operating expenses of $1,829,833 and $4,338,913 (2022: $894,160 and $3,407,076), respectively. This increase is mainly due to operating expenses incurred in the Company's new Carrizales Norte field in the Tapir block.

Operating Netbacks

 
                                      Three months ended     Nine months ended 
                                         September 30           September 30 
                                       2023       2022        2023       2022 
----------------------------------  ---------  ----------  ---------  --------- 
 Natural Gas ($/Mcf) 
 Revenue, net of transportation 
  expense                               $1.95       $3.16      $2.01      $4.05 
 Royalties                            ($0.05)     ($0.35)    ($0.02)    ($0.64) 
 Operating expenses                   ($1.72)     ($1.93)    ($2.10)    ($2.24) 
----------------------------------  ---------  ----------  ---------  --------- 
 Natural Gas operating netback(1)       $0.18       $0.88    ($0.11)      $1.18 
----------------------------------  ---------  ----------  ---------  --------- 
 Crude oil ($/bbl) 
 Revenue, net of transportation 
  expense                              $77.63      $90.90     $73.16     $91.00 
 Royalties                            ($9.45)    ($10.97)    ($9.02)   ($10.61) 
 Operating expenses                   ($7.56)     ($6.24)    ($6.50)   ($10.09) 
----------------------------------  ---------  ----------  ---------  --------- 
 Crude Oil operating netback(1)        $60.62      $73.69     $57.64     $70.30 
----------------------------------  ---------  ----------  ---------  --------- 
 Corporate ($/boe) 
 Revenue, net of transportation 
  expense                              $68.80      $73.02     $62.14     $61.75 
 Royalties                            ($8.21)      (8.72)    ($7.40)    ($7.59) 
 Operating expenses                   ($7.92)      (7.55)    ($7.59)   ($11.50) 
----------------------------------  ---------  ----------  ---------  --------- 
 Corporate Operating netback 
  (1)                                  $52.67      $56.75     $47.15     $42.66 
----------------------------------  ---------  ----------  ---------  --------- 
 

(1) Non-IFRS measure

The operating netbacks of the Company continued within healthy levels during 2023 due to several factors, mostly increasing production from its Colombian assets, even factoring in decreased crude oil prices, which were offset by decreases in natural gas prices and operating expenses for natural gas.

General and Administrative Expenses (G&A)

 
                                        Three months ended         Nine months ended 
                                            September 30              September 30 
                                         2023         2022         2023         2022 
-----------------------------------  -----------  -----------  -----------  ----------- 
 General & administrative expenses     2,069,314    2,490,114    7,259,939    5,139,135 
 G&A recovered from 3(rd) parties      (145,225)    (222,735)    (468,975)    (389,765) 
-----------------------------------  -----------  -----------  -----------  ----------- 
 Total G&A                             1,924,089    2,267,379    6,790,964    4,749,370 
-----------------------------------  -----------  -----------  -----------  ----------- 
 Cost per boe                              $8.33       $30.74       $11.89       $16.03 
 

For the three and nine months ended September 30, 2023, G&A expenses before recoveries totaled $2,069,314 and $7,259,939 (2022: $2,490,114 and $5,139,135), respectively, which represent a decrease and an increase, respectively, when compared to the same periods in 2022. These variances are mainly due to additional personnel and legal services during 2023, payment of performance bonuses to management and employees, as well as increase in marketing expenses. Despite these increased expenses, and due to the Company's increased production, G&A expenses remain consistent, on a per barrel basis, to $11.89/boe when compared to $16.03/boe for the nine months ended September 30, 2022.

Share-based Compensation

 
                          Three months ended     Nine months ended 
                             September 30           September 30 
                           2023        2022       2023       2022 
----------------------  ----------  ---------  ---------  --------- 
 Share-based Payments      149,102    110,876    440,360    214,712 
----------------------  ----------  ---------  ---------  --------- 
 

Share-based compensation expense for the three and nine months ended September 30, 2023 totaled $149,102 and $440,360 (2022: $110,876 and $214,712), respectively. During 2023, the Company has granted 1,650,000 options to its personnel, which was offset by reversal of expenses from cancelled options due to resignations of option holders. The share-based compensation expense is the result of the progressive vesting of the options granted to the Company's employees, plus the effect of cashless exercising, and net of cancellations and forfeitures, according to the company's stock-based compensation plan.

Financing Costs

 
                                       Three months ended     Nine months ended 
                                          September 30           September 30 
                                        2023        2022       2023       2022 
-----------------------------------  ----------  ---------  ---------  --------- 
 Financing expense paid or payable       98,742    164,469    369,833    653,017 
 Non-cash financing costs                34,343     54,272     95,638    144,247 
-----------------------------------  ----------  ---------  ---------  --------- 
 Net financing costs                    133,085    218,740    465,471    797,264 
-----------------------------------  ----------  ---------  ---------  --------- 
 

The finance expense paid or payable represents mostly interest on the promissory note due to Canacol, as partial payment for the acquisition of Carrao Energy SA, and have decreased due to repayment of the outstanding balance . The non-cash finance cost represents an increase in the present value of the decommissioning obligation for the current periods. The amount of this expense will fluctuate commensurate with the asset retirement obligation as new wells are drilled or properties are acquired or disposed.

Depletion and Depreciation

 
                                Three months ended       Nine months ended 
                                    September 30            September 30 
                                 2023        2022         2023        2022 
----------------------------  ----------  ----------  -----------  ---------- 
 Depletion and depreciation    3,972,850   1,809,340   10,067,403   3,649,932 
----------------------------  ----------  ----------  -----------  ---------- 
 

Depletion and depreciation expense for the three and nine months ended September 30, 2023 totaled $3,972,850 and $10,067,403 (2022: $1,809,340 and $3,649,932), respectively. The increase is due to higher carrying value of depletable property, plant and equipment and increased production. The Company uses the unit of production method and proved plus probable reserves to calculate its depletion and depreciation expense.

Gain (loss) on Derivative Liability

 
                                           Three months ended         Nine months ended 
                                               September 30              September 30 
                                            2023          2022         2023        2022 
-------------------------------------  -------------  -----------  -----------  ---------- 
 Gain (loss) on Derivative Liability     (1,191,385)    (543,659)    (109,613)   4,968,934 
-------------------------------------  -------------  -----------  -----------  ---------- 
 

During the three and nine months ended September 30, 2023, the Company recorded gains in derivative liability of $1,191,385 and $109,613 (2022: $543,659 and loss of $4,968,934), respectively, related to the valuation of its outstanding warrants issued during its AIM listing and private placement completed in 2021. These warrants provide the right to holders to convert them into common shares at a fixed price set in a currency different to the Company's functional currency and, therefore, they are considered a liability and measured at fair value with changes recognized in the statements of operations and comprehensive income (loss).

LIQUIDITY AND CAPITAL RESOURCES

Capital Management

The Company's objective is to maintain a capital base sufficient to provide flexibility in the future development of the business and maintain investor, creditor and market confidence. The Company manages its capital structure and makes adjustments in response to changes in economic conditions and the risk characteristics of the underlying assets. The Company considers its capital structure to include share capital, debt and adjusted working capital. In order to maintain or adjust the capital structure, from time to time the Company may issue common shares or other securities, sell assets or adjust its capital spending to manage current and projected debt levels.

As at September 30, 2023, the Company has an adjusted working capital of $10,822,475. The Company has continued improving its working capital, using its operational cash flows to settle its obligations and to continue growing its operations. The overall improvement in energy commodity prices has also positively impacted the Company's capacity to generate sufficient financial resources to sustain its operations and growth.

As at September 30, 2023 the Company's net debt (net cash) was calculated as follows:

 
                                                                                                    September 30, 
                                                                                                             2023 
--------------------------------------------------------  ------------  ----------------------------------------- 
 
               Current assets                                                            $             18,652,504 
               Less: 
               Accounts payable and accrued liabilities                                                 6,549,995 
               Income taxes                                                                             1,176,316 
------------------------------------------------------------------------------------------  --------------------- 
 
               Net debt (Net cash) (1)                                                   $           (10,296,193) 
----------------------------------------------------------------------    ----------------  --------------------- 
 

(1) Non-IFRS measure

Adjusted Working Capital

As at September 30, 2023 the Company's adjusted working capital was calculated as follows:

 
                                                                                                   September 30, 
                                                                                                            2023 
---------------------------------------------------------  ------------  --------------------------------------- 
               Current assets: 
                 Cash and restricted cash                                                 $           12,891,190 
                 Restricted cash and deposits                                                            218,178 
                 Trade and other receivables                                                           2,797,577 
                 Taxes receivable                                                                      1,735,143 
                 Other current assets                                                                  1,010,416 
               Less: 
                Accounts payable and accrued liabilities                                               6,549,995 
                Lease obligation                                                                         103,718 
                 Promissory note                                                                               - 
                 Income tax payable                                                                    1,176,316 
-------------------------------------------------------------------------------------------  ------------------- 
 
               Adjusted Working capital(1)                                                $           10,822,475 
-----------------------------------------------------------------------    ----------------  ------------------- 
 

(1) Non-IFRS measure

Debt Capital

During 2023, the Company has paid off its a promissory note payable to Canacol.

Letters of Credit

As at September 30, 2023, the Company had obligations under Letters of Credit ("LC's") outstanding totaling $2.7 million to guarantee work commitments on exploration blocks and other contractual commitments. In the event the Company fails to secure the renewal of the letters of credit underlying the ANH guarantees, or any of them, the ANH could decide to cancel the underlying exploration and production contract for a particular block, as applicable. In this instance, the Company could risk losing its entire interest in the applicable block, including all capital expended to date and could possibly also incur additional abandonment and reclamation costs if applied by the ANH.

 
                         Current Outstanding Letters of Credit 
 
 Contract        Beneficiary        Issuer           Type           Amount 
                                                                       (US    Renewal 
                                                                        $)      Date 
--------------  -------------  ---------------  -------------  -----------  ---------- 
 SANTA ISABEL                                                                April 14, 
                     ANH        Carrao Energy    Abandonment      $563,894      2024 
                                                  Financial                  December 
                     ANH        Carrao Energy      Capacity     $1,672,162    31, 2023 
 CORE -                                                                      December 
  39                 ANH        Carrao Energy     Compliance      $100,000    31, 2023 
                                                  Financial                  April 14, 
 OMBU                ANH        Carrao Energy      Capacity       $436,300      2024 
--------------  -------------  ---------------  -------------  -----------  ---------- 
 Total                                                          $2,772,356 
                                                               =========== 
 

Share Capital

As at September 30, 2023, the Company had 245,526,041 common shares, 40,713,308 warrants and 20,865,000 stock options outstanding.

CONTRACTUAL OBLIGATIONS

The following table provides a summary of the Company's cash requirements to meet its financial liabilities and contractual obligations existing at September 30, 2023:

 
                                        Less than 
                                          1 year                  1-3 years                  Thereafter                  Total 
 
            Exploration and 
             production 
             contracts                      -                        17,800,000                         -               17,800,000 
-------------------------------   ---------------------  ----------------------      --------------------   ---------------------- 
 
 

Exploration and Production Contracts

The Company has entered into a number of exploration contracts in Colombia which require the Company to fulfill work program commitments and issue financial guarantees related thereto. In aggregate, the Company has outstanding exploration commitments of $17.8 million. The Company, in conjunction with its partners, have made applications to cancel its commitments on the COR-39, Macaya and Los Picachos blocks.

On November 17, 2023, the ANH confirmed the termination by mutual agreement of the Macaya block exploration and production contract. This contract included minimum work commitments for $3,830,000 for the Company, which have been waived by the ANH according to the terms of termination.

SUMMARY OF THREE MONTHS RESULTS

 
                                    2023                                              2022                               2021 
                       Q3             Q2            Q1            Q4            Q3            Q2            Q1            Q4 
                 -------------  -------------  ------------  ------------  ------------  ------------  ------------  ------------ 
 Oil and 
  natural 
  gas sales, 
  net 
  of royalties      13,990,353     11,637,968     6,992,860     8,931,562     7,614,336     5,024,604     3,911,329     3,038,832 
 Net income 
  (loss)             7,153,120      (757,416)     2,989,735     2,968,117     2,041,955       768,318   (5,431,865)     6,960,035 
 Income (loss) 
  per share - 
   basic              0.03          (0.00)          0.01          0.01          0.02          0.00         (0.03)         0.04 
   diluted             0.02          (0.00)         0.01          0.01          0.00          0.00         (0.02)         0.04 
 Working 
  capital 
  (deficit)         10,822,475    (2,363,388)     2,619,715   (1,316,665)     7,392,310     5,594,027     7,657,938     8,006,074 
 Total assets       62,755,250     56,305,530    53,719,944    53,190,248    46,979,259    42,670,153    39,914,240    41,195,798 
 Net capital 
  expenditures       5,471,561      6,870,258     4,271,693     2,106,463     4,836,860     2,777,611       725,665     1,991,163 
 Average daily 
  production 
  (boe/d)                2,518          2,169         1,635         1,736         1,503           980         1,144           712 
                 -------------  -------------  ------------  ------------  ------------  ------------  ------------  ------------ 
 

The Company's oil and natural gas sales have increased 84% in 2023 when compared to Q3 2022 due to increased production in its existing assets and healthy oil and gas prices. The Company's production levels in Colombia continue growing. Trends in the Company's net income are also impacted most significantly by operating expenses, financing costs, income taxes, depletion, depreciation and impairment of oil and gas properties, and other income.

OUTSTANDING SHARE DATA

At November 27, 2023, the Company had the following securities issued and outstanding:

 
                                                                    Exercise 
                                          Number                      Price                         Expiry Date 
-------------------------  -------------------------  -------------------------  ------------------------------------- 
            Common shares                285,864,348                    n/a                              n/a 
            Stock options                    750,000                 CAD$ 1.15                    October 22, 2028 
            Stock options                    270,000                 CAD$ 0.31                       May 3, 2029 
            Stock options                  1,200,000                 CAD$ 0.05                     March 20, 2030 
            Stock options                  2,000,000                 CAD$ 0.05                     April 13, 2030 
            Stock options                  5,966,668                GBP 0.07625                June 13, 2024 and 2025 
            Stock options                  2,300,000                 CAD$0.28                  Dec. 9, 2023, 2024 and 
                                                                                                         2025 
            Stock options                  1,250,000                 CAD$0.26                  Mar. 7, 2024, 2025 and 
                                                                                                         2026 
            Stock options                  5,478,332                GBP 0.1675                 June 21, 2024, 2025 and 
                                                                                                         2026 
            Stock options                    650,000                GBP 0.1925                 July 23, 2024, 2025 and 
                                                                                                         2026 
            Stock options                  1,000,000                 CAD $0.33                 Mar. 21, 2024, 2025 and 
                                                                                                         2026 
 

OUTLOOK

The Company has deployed the capital raised at the time of the Admission to AIM on a successful drilling campaigns at Rio Cravo and Carrizales Norte on the Tapir Block. These successful campaigns have translated into production growth and in positive cashflows during 2022 and 2023, providing Arrow with the funds required to continue with its capital program for 2023.

To date, the Company has already drilled eight wells of its 2023 budget (four at Rio Cravo, three at Carrizales Norte and one in Oso Pardo), which have increased overall production and more wells being drilled in Q4 2024. This confirms Arrow's commitment to increase production and shareholder value. The Company is able to support the remaining planned 2023 CAPEX program with current cash on hand and cashflow from operations.

CRITICAL ACCOUNTING ESTIMATES

A summary of the Company's critical accounting estimates is contained in Note 3 of the Annual Financial Statements. These accounting policies are subject to estimates and key judgements about future events, many of which are beyond Arrow's control.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the Company's significant accounting policies is included in the Annual Financial Statements. These accounting policies are consistent with those of the previous financial year.

RISKS AND UNCERTAINTIES

The Company is subject to financial, business and other risks, many of which are beyond its control and which could have a material adverse effect on the business and operations of the Company. Please refer to "Risk Factors" in the MD&A for the year ended December 31, 2022 for a description of the financial, business and other risk factors affecting the Company which are available on SEDAR at www.sedar.com

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END

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